Economy Country Brief last updated April 2008 
Eritrea is one of the poorest countries in the world, with an average annual per capita income of US$ 200 in 2006, and ranks 157th out of 177 countries in the 2005 Human Development Index.1 The population is estimated to be about 4.5 million of who two thirds normally live in rural areas – although there has been no recent census. The Eritrean Diaspora is large and is increasing. Rain-fed agriculture, the predominant economic activity for more than half of the population, is a very risky enterprise and food security remains one of the government’s main concerns. Economic conditions have not improved and real GDP growth averaged 1.0 percent between 2005 and 2007. Favorable rains and rehabilitation of rural infrastructure have led to improved agricultural performance and food security in the last three years, following the droughts witnessed in 2002 and 2003. However, non-agricultural growth remains weak. Large fiscal and trade deficits are managed through price, exchange rate and interest rate controls, which have lead to a shortage of foreign exchange (two weeks of imports) and a fall in private sector activity. The size of the public debt in proportion to GDP is a concern, although Eritrea remains current on debt payments. The official annual inflation rate was 12.6 percent in 2007, and is reported to be on a downward trend. In the longer term, sustained real economic growth of 7 percent or more will be required for Eritrea to reach the Millennium Development Goal of halving the proportion of people living in extreme poverty by 2015. Eritrea is a young nation-state. After a 30-year war with Ethiopia, Eritrea attained de facto independence in May 1991 and de jure independence two years later. The initial years of independence were marked by impressive progress in rehabilitating basic economic and social infrastructure, improving social indicators, macroeconomic stability and economic growth. During 1993-97, the economy grew at an average annual rate o f 10.9 percent. These development gains were interrupted when a border dispute with Ethiopia erupted into renewed conflict in May 1998. A Temporary Security Zone (TSZ) monitored by a U.N peace-keeping force was established in accordance with the Peace Agreement signed in 2000.The Ethiopia-Eritrea Boundary Commission (EEBC) made a final “virtual” demarcation of the boundary at the end of 2007. This has been accepted by Eritrea but was rejected by Ethiopia. Tensions between the two countries remain high and both have troops positioned alongside the border. In January 2008 the UN Security Council extended the United Nations Mission in Ethiopia and Eritrea (UNMEE) mandate until July 2008. In February 2008, UNMEE commenced plans to relocate personnel and equipment from the Temporary Security Zone in response to interruptions to regular supplies. In a situation that has been described as "no war, no peace", Eritrea's government has remained in a state of heightened mobilization and some 200,000 are estimated to be mobilized. As such tackling the underlying imbalances in the economy is not a priority for the Government at this stage.. Social Development Situated in the Sahel, Eritrea suffers period droughts and chronic food shortage. Even in times of good rainfall domestic food production is estimated to be 60 to 70 percent of the populations’ needs. The last household survey and Participatory Poverty Assessment (PPA) undertaken in 2003 estimated around two thirds of the population were living below the poverty line. The current applicability of the estimate is questionable since 2003 followed a particularly bad drought year and agricultural production has been favorable since then, although at the same time per capita incomes have been in decline.
The general health status of Eritrea has greatly improved since independence. Many health outcome indicators compare favorably with Sub-Saharan African neighbors, and are improving faster. Based on the on the DHS between 1995 and 2002 infant mortality rate decreased from 72 to 48 deaths per 1,000, under-five mortality rate dropped from 136 deaths per 1000 to 93, and the total fertility rate decreased from 6.1 to 4.8 births per woman on average. Success in some disease control programs is particularly impressive. For example, with support from World Bank-funded projects, malaria morbidity and mortality has dropped over 80 percent since 1999, making Eritrea one of only a few countries in Sub-Saharan Africa to meet the Abuja "Roll Back Malaria" targets. While most other SSA countries suffer from an increasing HIV epidemic, HIV prevalence in Eritrea is estimated to be low and under control at 2.4 percent of the adult population compared to the SSA average of 7 percent. Life expectancy was estimated to be 54 years of age in 2004, compared to the SSA average of 46 years (in 2005). Nevertheless, important challenges remain. Rural households suffer worse health outcomes and improvements are coming more slowly. Malnutrition is of particular concern among women and children. An estimated 46 percent of the population were estimated as undernourished in 2002 and 40 percent of children were found to be underweight for their age. Around 37 percent of women have a low body mass index.2 Although it has declined very sharply in the past 10 years, the Maternal Mortality Ratio in Eritrea is estimated at 752 per 100,000 live births.
Despite expanding schooling opportunities, Eritrea faces significant challenges in enrollment and completion of elementary school. Elementary school GER stands at only 72 percent, lower than the low-income countries and the Sub-Saharan African averages of 92 percent. With only 44% girls enrolment in 2005/06 concern is gender equity in schools. Additional challenges lie in the high repetition and dropout rates, and the resulting elementary completion rates of 50 percent on average. Coming from such a low starting point, well-targeted public investments in human capital as well as physical capital are critical to improved well-being for Eritreans. Government Strategy The government’s priorities are to (i) ensure security – including food security; (ii) develop human resources and (iii) develop physical infrastructure. The government has a Food Security Strategy developed in 2003 and updated in 2006 to make “food of sufficient quantity and acceptable quality readily accessible to all at an affordable price at any time and place within the country.” The government’s economic strategy is to manage the macroeconomic imbalances using price controls and regulations until such time as the security situation allows a transition to a more market-based economy. In the meantime, in order to encourage new inward investment the government has established the Free Zone at Massawa port. Economic growth prospects have improved with the progress made in establishing a joint mining venture at Bisha (gold and copper deposits). The Bisha feasibility study showed the project to be financially robust with gold extraction expected to commence in 2010. World Bank Assistance The World Bank’s activities in Eritrea date back to 1992. As of March 2008, the Bank’s portfolio of lending in Eritrea consisted of 5 projects with a total commitment of US$209.3 million in the areas of infrastructure, social protection, education and health. The Bank is currently preparing a new strategy for future engagement in Eritrea: the Interim Strategy Note (ISN). The objective of this ISN is to support the government to deliver improved human development and infrastructure services. Specific results anticipated during the ISN period are: expanded access to, and completion of primary school education; reduced incidence of communicative disease and improved reproductive health care provided; improved child health and education outcomes; improved power generation capacity and electrification in rural areas; and expanded open, reliable Internet access. For more information on World Bank assistance to Eritrea including a list of the World Bank assisted projects, refer to Projects and Programs. The International Finance Corporation (IFC). IFC has not made any new investment in Eritrea since 1997. The border conflict with Ethiopia shifted IFC’s focus to providing technical assistance in the fish, marble and granite, and banking industries. In line with IFC’s new Strategic Initiative for Africa, activities in Eritrea are in support of improving the investment climate, for example in working with Government to develop and attract investors to the mining sector. IFC will look at improving the investment climate conditions and investment opportunities in industries with a comparative advantage and export potential, such as tourism, fishery, marble & granite, mining, aquaculture and horticulture. Furthermore, IFC will look to assist Government with its privatization program through financing and technical assistance.
Multilateral Investment Guarantee Agency (MIGA). Although MIGA does not have an active program in Eritrea, it remains a priority country due to its IDA and conflict-affected status. With progress in the peace process, opportunities could emerge for MIGA to support foreign involvement in Eritrea World Bank Institute (WBI). WBI activity in Eritrea has been limited to date. 1. GDP per capita of US$ 200 is based on latest estimates available for 2006. World Bank also estimates GNI per capita using the Atlas method has fallen from US$220 to US$170, and using international purchasing power parity (PPP) estimated from US$1220b to US$1,010 between 1998 and 2005. 2. World Food Program based on the National Nutrition Surveillance System. Demographic and Health Survey 2002. Contacts Mr. Colin Bruce
Country Director
Hill Park Building, Upper Hill, Nairobi, Kenya
Tel (254-20) 3226-441
Fax (254-20) 3226 382 Mr. James Christopher Lovelace
Country Manager in Eritrea
P O Box 4983 15/17 Tsegai Adig Str.
Zone 03 - Subzone 01
Asmara/Eritrea
Tel: (291-1) 12-43-02
Fax: (291-1) 12-43-09 Marie-Hélène Bricknell
Country Program Coordinator
1818 H Street, N.W. Washington, DC 20433, USA
Tel: (202) 473-5622
Fax (202) 473-5453 Ms. Tracey Lane
Senior Economist
Hill Park Building, Upper Hill, Nairobi, Kenya
Tel (254-20) 3226-418
Fax (254-20) 3226-382 Mr. Harold Bedoya
Senior Country Officer
1818 H Street NW, Washington DC 20433, USA
Tel. (202) 473-8733
Fax (202) 473-5453 Mr. Samuel Zerom
acting Country/Operations Officer
P O Box 4983 15/17 Tsegai Adig Str.
Zone 03 - Subzone 01
Asmara, Eritrea
Tel: (291-1) 12-43-02
Fax: (291-1) 12-43-09 |
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